EXCHANGE TRADED FUND (ETF)- BASED MUTUAL FUND: CASE STUDY OF ASIAN BOND FUND (ABF) MANAGED BY PT BAHANA TCW INVESTMENT MANAGEMENT

Tuesday, December 18th, 2007, marked the new era in the history of Indonesian capital market due to the introduction of a brand new mutual fund in Indonesia called Exchange Traded Fund (ETF). The Fund, known as  the Asian Bond Fund ETF – Indonesia Bond Index Fund Bahana TCW (R-ABFII) is sold at the launching date at Rp 13,003 per unit.  The benchmark for R-ABFII is the State of Indonesia Bond (SUN) Index  published in the form of iBoxx ABF Index, which is managed by an international independent institution based in Frankfurt – Germany: International Index Company (IIC). The Fund is considered to be a very unique and attractive alternative for investment with the credibility as high as the sovereign rating of Indonesia. By investing in the Fund, investors easily get diversified government portfolio. Furthermore, ETF is much more competitive compared to conventional fund, because investor will be charged less brokerage fee. In addition, ETF is the only product which reflects the efficiency level of government bond market in Indonesia. The Fund could be seen be seen as the investment grade equivalent with the sovereign rate of Indonesia. Accordingly, there is a remote possibility that the Fund will be default.”

The case study discusses how a non-traditional Fund compete with the traditional ones during which time local investors prefer to maintain their risk-averse approach in their investment pattern. When originally introduced, regulatory agencies such as Indonesian Stock Exchange (BEI), Bank Indonesia and Bapepam LK are very confident that the product will boost the market because the international support given by    the Executives Meeting of East Asia and Pacific Central Banks, or EMEAP. EMAP consists of 11 (eleven) central bank and monetary authority: the Bank of Japan, Bank of China, Bank of Korea, The Reserve Bank of Australia, The Reserve Bank of New Zealand, Hong Kong Monetary Authority, Monetary Authority of Indonesia, Bank of Thailand, Bangko Sentral ng Pilipinas, State Bank of Malaysia, and Bank Indonesia. Whether the support shown by the official regulatory agencies, will in fact, boost the total investment in the product is still uncertain.

Bahana TCW Investment Management is really in a dillematic position when decided to manage the unique fund given a variety of profitable product being offered by the market.